UK Budget Sparks Debt Frenzy: What’s Next for Government Bonds, According to Bond Market Moguls

(Original title: The British Budget triggered a surge in debt. How do bond tycoons view the future of government bonds?)

Zhitong Finance APP learned that the dust of the British budget has settled, and investors have conducted an in-depth analysis of the future trend of the government bond market. The package proposed in the Budget is expected to lead to a sharp increase in government borrowing in the coming years, with inflation and growth forecasts also being higher than expected. While Chancellor Rachel Reeves managed to avoid triggering the chaos of former Prime Minister Liz Truss’s mini-budget, bond markets have been hit hard and investors are trying to understand the implications for monetary policy.

The following are the reactions of 10 major investors interviewed by the media:

Neil Mehta of RBC BlueBay Asset Management believes that huge borrowing and ambitious growth forecasts are the key points of the budget. Although the chancellor has delivered a credible message, there is not much room for decline in growth or borrowing, which may triggering volatility in the bond market.

Vivek Paul of BlackRock Investment Institute noted that policy leaks and interactions with the Office for Budget Responsibility have had the desired effect on the market, with UK government bond yields reacting very differently to 2022. He believes political stability and possible interest rate cuts from the Bank of England will prompt them to continue to increase their holdings of British stocks and government bonds.

Ranjiv Mann of Allianz Global Investors said the desire for fiscal discipline remains unchanged, which is positive for UK government bonds. From a valuation perspective, the market believes that the UK’s interest rate cut cycle is more moderate than that of other G10 markets, and they prefer British government bonds.

Janus Henderson Investors’ Helen Anthony believes the UK is not immune to Europe’s slowdown and will be slightly more cautious in the short term, but UK government bonds are likely to be in favor as the focus turns to economic data.

Fidelity International’s Shamil Gohil stressed that the Office for Budget Responsibility’s support for growth forecasts gave the budget more credibility and that, although markets may be volatile, overall UK government bonds have outperformed.

Helen Anthony of Royal London Asset Management pointed out that the economic growth forecast is optimistic and the inflation figure is higher than the Bank of England forecast, which may affect the Bank of England’s decision to cut interest rates.

David Page of AXA Investment Managers mentioned that the huge increase in spending and investment means that borrowing has also increased significantly, with about 120 billion pounds of additional government bonds will be issued over the next four years.

Matthew Amis of abrdn believes that the entire plan far exceeds expectations, but it is not reckless. Premiums on UK government bonds rose and they thought they could bridge the gap.

Ales Koutny of Vanguard Group said that this is the loosest budget in years and will not lead to large-scale action by the Bank of England. They maintain their overweight view on sterling and adopt a neutral stance on British government bonds.

Marcus Jennings of Schroders pointed out that the word “stability” was mentioned several times in Reeves’ speech, bringing comfort to the market and alleviating concerns that the fiscal situation may be worse. Reeves has been quite aggressive in raising taxes to fill funding gaps, demonstrating that she is not toying with the public finances.